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Friday, July 9, 2010
Strategic Defaults by Ruthless Rich People
A report in Friday's New York Times suggests that strategic mortgage defaults are rising the fastest among the rich -- a group which can afford to make the payments but chooses to default as a way of abandoning the equivalent of a failing investment.
Data from the real estate analytics firm CoreLogic (quoted in the article) indicates that one in seven homeowners with a loan of over $1 million is in default. That is a staggering 14-15%.
"The rich are different; they are more ruthless."
-- Sam Khater, CoreLogic's senior economist, quoted in the New York Times, July 9, 2010.
Consider this the next time someone tries to persuade you that the defaulting homeowner class is full of needy victims. Some are victims of circumstances beyond their control -- as many have always been, stricken by catastrophic medical bills or other emergencies. (Those are the real hardship cases. Funny no one sheds a tear for them.)
But in the current climate, many defaulters were simply greedy homeowners to begin with. Their greed was the genesis of the move to buy houses at obviously overinflated prices and on sometimes absurd mortgage terms. It ought not be too surprising to see more greed -- CoreLogic's Sam Khater calls it ruthlessness -- on the back end.
Eric Dixon is a New York lawyer who has successfully sued several deadbeats. He can be reached at edixon@NYBusinessCounsel.com and at 917-696-2442.